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Marketing Compliance in the Digital Economy

In recognition of the importance of the digital economy, new laws and new enforcement activities are at play in Canada that target digital marketing activities. Now is an opportune time for anyone engaged in these activities to take stock of the laws and consider their implications.

Enforcement agencies, such as the Competition Bureau and the CRTC, have stepped up their enforcement of marketing laws in the digital space. Next month, a new private right of action is also scheduled to come into force. This will allow private parties to seek statutory and other damages through the Courts for marketing activities that breach provisions of the Competition Act and Canada's anti-spam legislation, such as deceptive electronic marketing messages.

Under the Competition Act, a representation to the public to promote a product, service or business interest that is false or misleading in a material respect can be subject to civil or criminal sanction. The Competition Act also spells out specific requirements for representations relating to ordinary (or regular) prices, performance, tests and testimonials.

Targeting misleading electronic messages

In addition, the Competition Act was amended as part of Canada's anti-spam legislation to include provisions that specifically address misleading representations in the sender or subject matter information, location information or content of an electronic message. Significantly, it is not necessary to establish that a misleading representation in the subject matter, sender or locator information of an electronic message is false or misleading in a "material respect" to be in contravention of these new provisions.

The potential consequences of non-compliance with these provisions are significant. Breach of the civil provisions can result in an administrative monetary penalty (AMP) of up to $750,000 for an individual and $10 million for a corporation, with the possibility of restitution and, shortly, private actions for statutory damages of up to $200 per violation (to a maximum of $1 million per day) in some cases. If the non-compliance is engaged in knowingly or recklessly, criminal liability, including fines and imprisonment, are possible.

Drip pricing under scrutiny

"Drip pricing" - on the Internet, in emails, and in traditional media - has attracted particular attention from the Competition Bureau of late. Drip pricing refers to prices that are not attainable, due to non-optional fees that are levied by the supplier in addition to the advertised price.

In June 2016, Avis/Budget agreed to pay an AMP of $3 million (plus Competition Bureau costs of $250,000) for advertising car rental prices that are not attainable and for misrepresenting mandatory fees as taxes when, in fact, the fees were imposed by Avis/Budget to cover its costs of doing business. A few months ago, Hertz/Dollar Thrifty agreed to pay an AMP of $1.25 million for similar conduct. In 2016, Comwave, a company that sells home phone and Internet services, agreed to pay an AMP of $300,000 (plus Competition Bureau costs of $60,000) for advertising prices that did not reflect non-optional fees disclosed in fine print disclaimers on its website and in other media, and representing that its Internet service was "unlimited" when the service was throttled if usage exceeded a cap.

These cases reinforce a number of important principles, including:

Advertised prices and discounts must be based on prices that are attainable (i.e. including all mandatory fees);

Internal fees must not be described as taxes;

Use of terms such as "unlimited" and "free" must be considered carefully if conditions apply;

The implications of fine print disclaimers may not be obvious; and

Representations in the subject line of electronic messages should be reviewed for compliance in isolation.

Beware inflated discount claims

Online regular selling price representations have also been the subject of recent Competition Bureau enforcement activity. In January of this year, an online retailer agreed to pay an AMP of $1 million and $100,000 in costs, to address allegations by the Competition Bureau concerning regular price representations on the online retailer's website, mobile apps, online ads and emails based on list prices provided to this online retailer by its suppliers. The Bureau concluded that the prices did not accurately reflect regular prices and that the resulting savings claims were inflated. This case underscores that persons making regular price (or discounts off regular price) representations must implement internal measures to validate list prices provided by suppliers against prices generally available in the market and comply with the ordinary price representation regime established by the Competition Act.

Any marketing through electronic messages must also comply with Canada's anti-spam legislation (CASL), including in particular the consent, content and unsubscribe requirements. The CRTC has been ramping up its enforcement of these requirements which, like the amendments to the Competition Act, will also be enforceable through private rights of action for statutory and other damages next month.

All this to say – businesses harnessing the power of digital advertising that do not implement policies to ensure compliance with Canada's marketing laws are vulnerable to costly enforcement proceedings.

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